North Carolina should adopt digital innovation, not digital control
The new era of financial innovation has been driven by digital currency and digital payment methods. These technologies are becoming more prevalent daily, with consumers, investors, and businesses seeking alternative payment methods and instruments. A February 2023 survey by Morning Consult, on behalf of Coinbase, found that 20% of Americans have some ownership of cryptocurrency. These technologies have shown their potential to disrupt traditional finance, but how governments interact with these technologies has yet to be decided.
The recent passage of House Bill 690 by the North Carolina House of Representatives, on a 118-0 vote, is a welcome development in the realm of digital currencies and digital payment. The legislation is a positive step towards limiting the influence of central banks, promoting free markets, and protecting the privacy and autonomy of individuals.
Central Bank digital currency (CBDC) presents a range of concerns for conservatives and libertarians who value individual liberties and free markets. Undoubtedly, central banks have a long history of debasing and manipulating currency. The advent of digital currencies brings with it a new set of risks. Central bank digital currencies could allow for tighter control over monetary transactions, potentially leading to surveillance and invasion of privacy.
Furthermore, introducing a CBDC could lead to a crowding out of private digital currencies and innovations, particularly if the power and authority of a government institution back such currencies. This crowding could limit competition and hinder development, stifling innovation in the digital economy.
The passage of House Bill 690, which prohibits the North Carolina government from accepting payment using central bank digital currency or participating in any test conducted by a Federal Reserve branch, is a sensible move that addresses these concerns. Limiting CBDCs will help preserve individuals’ privacy, autonomy, and independence while promoting healthy market competition.
From a free market perspective, it is vital to recognize the potential of private sector solutions to meet the demands of consumers for a reliable, secure, and stable currency. Rather than rely on government institutions, the market should be allowed to determine the best form of currency. This involves giving individuals the freedom to choose the currency in which they conduct their financial transactions rather than being subject to the whims of a central authority.
A few governments and central banks, such as China and Sweden, have proposed CBDCs as a potential solution for a modernized payment system. These digital currencies would be issued and regulated by a central authority rather than a decentralized network such as Bitcoin or Ethereum. While CBDCs could offer several benefits, such as faster transaction times, lower costs, and increased financial inclusion, they also raise concerns about privacy infringement and surveillance.
CBDCs are based on a centralized ledger system, with transaction records directly managed by the central bank. Therefore, the central bank could track and monitor any transaction made using CBDCs. Unlike traditional cash transactions, which are generally untraceable, digital currencies leave a digital footprint across the entire system. This level of transparency could be beneficial for maintaining financial stability or preventing illegal activities such as money laundering. However, it also enables governments or other entities to monitor and control the flow of funds throughout the economy.
House Bill 690 attempts to prevent the creation and use of an American CBDC by prohibiting the North Carolina government from accepting payment using a CBDC or participating in any test conducted by a Federal Reserve branch. This sensible move addresses these concerns of privacy, autonomy, and independence while promoting healthy market competition.
Moreover, issuing digital currencies would require linking individuals’ identities to their digital wallets, allowing for easy tracking of their transactions. This tracking ability would bypass the anonymity and private nature of cash transactions, diluting or eliminating individual privacy. The central bank would have access to sensitive information about individuals’ spending habits and financial activities, which could be used for profiling or surveillance purposes. The possibility of such scenarios raises critical ethical considerations surrounding using CBDCs.
The Florida legislature and Gov. Ron DeSantis recently passed a bill limiting the state’s use of CBDCs. The Florida legislation seeks to regulate any digital currency issued by a government or central authority, stating that it can only be used for payment purposes if it is denominated in US dollars. Florida lawmakers argue that this move will help safeguard the state’s financial stability and prevent illegal activities such as money laundering and tax evasion. This move reflects a growing concern among lawmakers regarding the potential risks and challenges posed by the rise of CBDCs.
North Carolina state lawmakers could also take a cue from its federal delegation, specifically Congressman Patrick McHenry (R-NC10), who is working on establishing clear rules on privately developed digital currencies and payment. This framework includes well-known cryptocurrencies like Bitcoin and Ethereum and currencies like stablecoins, providing affordable and quick cross-border payments.
House Bill 690 represents a positive step towards promoting a free market in digital currencies, providing consumers with choice and autonomy, and limiting the influence of central authorities. Such efforts deserve the support of conservatives, liberals, and libertarians who champion civil liberties. North Carolina should follow up on this likely bipartisan success by ensuring its current financial-services industry leadership continues.